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72. Memorandum From the Assistant Secretary of the Treasury for International Affairs (Bergsten) to Secretary of the Treasury Blumenthal 1

SUBJECT

  • EPG Meeting on Japan—November 9 at 9:30 AM

The Issues

Attached at Tab A is your agenda memo for the meeting; the more detailed interagency paper is at Tab B.2 After laying out the underlying facts, U.S. objectives and Japanese constraints, the papers outline four policy approaches (detailed in Appendix 1 of Tab B):

—Our option of “assured import shares”.

—Commerce’s proposal that Japan double its imports of manufactures over the next two or three years.

—State’s proposal that Japan achieve a current account deficit in 1979, and adopt precise measures now to achieve that objective.

—A combination of the current account target and increased market shares for imports.

There is widespread agreement on the two key issues. First, all agree that the Japanese must move to (a) reduce/or eliminate their global (not bilateral) surpluses in the short run and (b) make structural changes to raise the market share of imported manufactured and agricultural goods over the longer run. Hence the eventual package will have to include both an immediate current account target and a direct assault on the structural problems, a la one of the first two options.

Second, there is agreement that we here in Washington cannot judge which means to achieve these goals will be least objectionable to [Page 236]the Japanese. Hence we should essentially present Fukuda with all of our options and ask him to choose which combination is most achievable—assuring, however, that it will achieve our fundamental objectives.

This approach should adequately promote U.S. economic objectives while minimizing the costs to overall U.S.-Japanese relations. However, it is essential that the package we present—and those who present it to the Japanese—assign adequate weight to the structural, longer term measures.

Your Objectives

Your objectives at the meeting should thus be fourfold:

—To get agreement on sufficiently detailed proposals to make up a credible presentation to the Japanese; the short-term package is detailed in Appendix 2 of Tab B, and the long-term alternatives at Tab C. The real choice is between seeking GOJ agreement/commitment on ultimate goals or on changes in specific policies or some combination of the two.

—To assure full inclusion of the long-term, structural elements in the package.

—To reach agreement on a tactical approach which will assure accurate presentation of the package to the Japanese.

—To create interagency machinery for USG monitoring and follow-up.

For the short-term package, the list in Appendix 2 is acceptable if we want to incorporate specific measures to buttress the GOJ current account commitment.

For the longer term, we prefer the market shares approach. Value targets (such as a doubling of imports) are overwhelmingly determined by economic growth and other macroeconomic factors. Under this approach, we would seek a GOJ commitment to raise the import component of its consumption of consumer goods (and the other main sectors) from x% to y% by, say, 1980.

However, we must recognize that Japan’s ability to meet market share targets is limited, whether the shares are for the entire manufacturers sector or disaggregated, as we would ideally prefer, for consumer goods/investment goods/processed raw materials/agriculture. State opposes this approach because of the political difficulties it could cause Fukuda; we (and Jules Katz) believe that “bottom line targets” of this type may cause fewer problems for Fukuda than would a negotiation over detailed policy changes.

On the tactics, it is essential that we convey our views to Fukuda and the Japanese bureaucracy very soon. As far as we know, the Prime Minister is still planning to offer a program on November 18. We must inform him, well before that time, that his current thinking would pro[Page 237]duce minimal results and that much more far-reaching steps are needed.

Dick Holbrooke feels that only two Americans can credibly carry this message to Fukuda, because of their domestic political credentials: Ambassador Mansfield and Bob Strauss. There is widespread interagency agreement that Mansfield, buttressed by a small technical team from Washington, should convey the word early next week if we can get our position together in time. Strauss could then go to Fukuda in December to conclude the final agreement, once the Japanese had decided which approach to choose.

On the interagency follow-up, there is now reasonably effective coordination at the Assistant Secretary level (chaired by STR) and at the working level (chaired by State). If a more formalized EPG subgroup is deemed necessary, it should be chaired either by Treasury (due to your chairmanship of the EPG and overall international economic responsibility) or by STR (because these GOJ measures will be almost wholly in the trade area).

  1. Source: National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 1, IM–6 Balance of Payments 1977. No classification marking. Sent through Solomon. Neither Bergsten nor Solomon initialed the memorandum.
  2. Tabs A–C are not attached. No minutes of the November 9 EPG meeting were found. In the November 9 Evening Report to Carter, Vance summarized the meeting, which Blumenthal chaired: “We all agreed that our efforts with the Japanese must be carefully calibrated so that we have maximum chance to achieve our objectives while keeping faith with your commitments to Fukuda not to ‘shock’ them publicly. Our tentative thinking is that Mike Mansfield, using the personal relationship that he has built up with Fukuda, should begin the process with a private and frank talk with Fukuda. We will send a combined STR–Treasury–State working level group to Tokyo Monday to prepare Mike for his meeting. After that, we should proceed with technical discussions, which would be followed by a possible visit by Bob Strauss.” (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 19, Evening Reports (State): 11/77)